The Finance Ministry of India expects three or four public sector banks (PSBs) to be removed from the Prompt Corrective Action (PCA) within this year. This action by the Reserve Bank of India (RBI) imposes various lending restrictions on banks. The Finance Ministry has attributed various factors like capital infusion, improving financial health of PSBs, reducing bad loans, etc., for this expected change. The PCA framework imposes various lending restrictions on struggling banks that have inadequate capital, poor asset quality, and high non-performing assets.
The government recently announced a capital infusion of Rs.48,239 crore to help PSBs with their capital requirement and credit growth. Among the various beneficiaries, Corporation Bank and Allahabad Bank are expected to come out of the PCA framework within a few weeks. RBI’s Board for Financial Supervision will soon meet and discuss the issue of various banks that are currently facing actions under PCA.
In the latest round of capital infusion, Corporation Bank received over Rs.9,000 crore and remained the largest beneficiary. Allahabad Bank, which received over Rs.6,800 crore, is the second biggest beneficiary. Among the 21 state-owned lenders in India, 11 banks faced actions under the PCA framework at the beginning of this year.
RBI decided to remove Bank of India, Oriental Bank of Commerce, and Bank of Maharashtra from the list on 31 January 2019 after capital infusion in December. Other banks are currently working on ways to improve their capital and bring down non-performing assets. Considering these actions, sources indicate that about four more banks are expected to come out of the framework within another eight months.
The government is currently taking various initiatives to bring down bad loans and improve the asset quality of PSBs in India. In the first half of the current fiscal year, PSB have recovered about Rs.60,726 crore, which is twice as much recovered in the same period of last year. This declining bad loan situation may also come in handy for PSBs to come out of the PCA restriction imposed by RBI.
Source: Economic Times